EU Policy – Brexit Legalhttps://www.brexitlegal.com
Legal and Public Policy Considerations of the EU ReferendumThu, 16 May 2019 08:39:58 +0000en-UShourly1https://wordpress.org/?v=4.9.10Brexit – Where do we stand 18 March 2019?https://www.brexitlegal.com/2019/03/brexit-where-do-we-stand-18-march-2019/
https://www.brexitlegal.com/2019/03/brexit-where-do-we-stand-18-march-2019/#respondMon, 18 Mar 2019 11:43:19 +0000https://www.brexitlegal.com/?p=1416Summary Government strategy thrown into disarray by Speaker’s ruling that Parliament cannot vote on the May withdrawal deal again The threat of no deal Brexit on 29 March has been reduced, but not entirely removed The threat of no deal Brexit at some point in the future is still there, but remains small Brexit will … Continue Reading

Monday 11th: Theresa May made a late night dash to Strasbourg to meet Commission President Juncker, and returned with what she said was a legal improvement to the Irish border backstop, making it easier for the UK to withdraw.

Tuesday 12th: Early hopes that momentum could build towards the vote on the PM’s withdrawal deal were dashed when her colleague the Attorney-General published his advice: while the PM had secured stronger exit rights in the event of demonstrable bad faith by the EU, the improvement secured by the PM did not change his core legal advice on the risk of the UK being “trapped” in the backstop.

Parliament voted by 391 votes to 242 (a majority of 149) to reject the PM’s withdrawal deal: a significant improvement on the historic 230 majority against on January 15th (39 MPs switched sides, including some prominent Brexiteers), but still one of the largest majorities against a Government proposal.

Wednesday 13th: Parliament debated a Government motion to rule out a no deal Brexit, but also noting that no deal remains the default in the absence of a deal, which was then amended (by a majority of 4 votes) to rule out no deal in any circumstances, turning the Government against it. The amended motion passed by a majority of 43 (321 to 278) with a number of Ministers abstaining rather than voting against. The motion has no legal force, but is a strong expression of Parliamentary opinion which the Government cannot simply ignore.

At the beginning of the day, the Government published its tariff plan for a no deal Brexit (87% of imports to be tariff free) – produced with minimal consultation of business – and its plan for the Irish border (which could be characterised as a combination of smugglers’ free-for-all and an honesty box so unobtrusive and far from the border as to give no offence)

Thursday 14th: Parliament debated a Government motion to request an extension to the Article 50 timetable until the end of June, so long as Parliament has approved the Brexit deal, or if Parliament has not approved the Brexit deal the Government will need a longer extension, thus requiring the UK to participate in the European Parliament elections in May. The motion was approved (412 to 202 votes) after a number of amendments failed, including one (by just 2 votes) which would have given Parliament the power to hold a series of indicative votes on alternative Brexit models, and one (by a wide margin) calling for a further referendum.

Monday 19th: the Speaker ruled – following Parliamentary convention – that Parliament could not vote twice on a proposition that was the same or substantially the same: “a demonstrable change to the proposition would be required” for there to be a further vote on the PM’s withdrawal deal. “For something to be different it has to be fundamentally different, not in terms of wording but in terms of substance.”

The Government has announced that it will bring forward a Statutory Instrument to make the necessary change to UK law to allow an extension to the Article 50 timetable.

What happens next?

According to the Government’s plan, the withdrawal deal would have come back for a further meaningful vote in the first part of this week. It was already looking difficult for the Government to turn the 75 MPs they would need to switch votes, when the Speaker ruled that there must be a demonstrable change to the Government’s withdrawal deal (in this blog, by “withdrawal deal” means Withdrawal Agreement – the proposed Treaty – and the Political Declaration on the future relationship between the UK and the EU). The Speaker is understood not to have given the Government any notice of his ruling. It is open to the Government to bring the same issue for decision in a future session of Parliament.

Formally, the legal position remains that, in the absence of anything else, the UK will leave the EU on 29th March. Unless the UK decides to rescind the Article 50 notice, and effectively cancel the Brexit process (which the Government has ruled out doing), for the Brexit date to change, two things have to happen:

The EU has to agree to an extension to the Article 50 process. This is on the agenda for the European Council meeting this week, on 21st March. The European Council can only decide to extend the process by unanimity. The UK – and the Prime Minister particularly – will come under great pressure to specify the purpose of the extension. Then there is the question for how long. In the view of some jurists, if the UK is a member of the EU still on 23rd May, it must participate in the European Parliament elections. But the Parliament does not convene until 2nd July, so the UK’s failure to elect MEPs will have no practical effect until then. A strict interpretation would limit an extension to 22 May, but the EU may judge there to be no risk to any challenge to the validity of the Parliament so long as the UK is no longer a member by the time the Parliament convenes. However it is clear that any extension beyond 1st July puts the question of UK participation in the European elections squarely on the table, in addition to whatever other conditions the European Council decides to impose.

UK law (the European Union Withdrawal Act) has to be changed, which requires a Statutory Instrument – proposed by the Government – to be approved by both Houses of Parliament.

“The report of my death was an exaggeration” Mark Twain

The Government’s plan of course relied on Parliament reversing majorities of 230 and 149 against the PM’s withdrawal deal. The withdrawal deal has been pronounced dead several times by numerous MPs and commentators, but it is proving remarkably resilient. It may still be premature to pronounce it dead, though the Speaker’s intervention has certainly blown a large hole in its life-support system. Frankfurter Allgemeine Zeitung asked at the end of last week whether it is a zombie or a phoenix – it is clearly now in zombie state, but do not be surprised if it re-emerges at some point in the future. Government Ministers are still talking about the possibility of a further vote, and the procedural books are doubtless being scoured for a way to make that happen. Assuming change is necessary, it will take longer: of the key elements of the deal, the Withdrawal Agreement is the hardest to change. Achieving substantial change, as well as finding alternative ways to address the Irish border backstop, can more easily be done by putting more substance into the Political Declaration – given the complexion of Parliament, that process is however more likely to lead to further challenges to the UK’s red lines, and a softer Brexit.

So where does it all leave us?

Parliament has asserted itself, but has not yet succeeded in taking control. The Speaker has asserted himself and dropped a bomb on Downing Street. The Prime Minister’s authority in her Cabinet, party and Parliament has been seriously – perhaps fatally – eroded. Last week saw four Cabinet Ministers defy a three-line whip and keep their jobs, and a Cabinet Minister closing a debate with a strong argument to Parliament to support the Government’s proposal for a realistic extension to Brexit and then voting against it himself. This week has already seen the Government fail to anticipate the Speaker upholding long-standing Parliamentary precedent (dating back to 2nd April 1604) and so deny the Prime Minister her preferred strategy of forcing Parliament into a choice between the withdrawal deal and no deal Brexit on the one hand, or long delay on the other. Unless the Government can find some way to get round the Speaker’s ruling, the choice is now clear: long delay (which may yet lead back to the withdrawal deal in time), or no deal Brexit. The first is the expressed will of Parliament; the second is the law of the land.

The question now for British Parliamentarians is whether you try to define the future relationship between the UK and the EU before exit or after. There has been much focus on the lack of unilateral withdrawal provisions from the Irish border backstop. But the lack of unilateral ability to withdraw from or radically deviate from the Good Friday Agreement is the underlying determinant (and no British politician would argue that the UK should go back on the GFA). The GFA does not require there to be no hard border, but there is much argument that the re-establishment of hard border infrastructure would mark a strongly regressive step in the implementation of the GFA, and as such would be incompatible with the GFA. Hence the UK Government’s rather preposterous no deal border policy: you simply leave the border wide open.

The Brexiteers have welcomed the Speaker’s decision: it removes them from the immediate trap the Government had set for them. It opens the way for a “no deal” Brexit, which some of them want. However, given the clear majority in Parliament against a “no deal” Brexit, and the Speaker’s ability to use the flexibility of Parliamentary convention, the Speaker’s ruling also makes the prospects for a longer delay to the Artcile 50 process, and more Parliamentary input to the definition of the future relationship – both of which point strongly towards softer Brexit model – more likely. The Government has said it will propose the necessary changes to UK law to delay the Brexit date: this is likely to command a strong Parliamentary majority. Parliamentary opinion would define the future relationship in ways likely to lead to closer integration with the EU than the Brexiteers would want. The Brexiteers favour a relationship along the lines of the EU-Canada FTA, but even this would need a very high degree of regulatory and tariff alignment in order to minimize the Irish border impact (unless new technology provides an answer at some point in the future). Labour argues for a renewed customs union, which would constrain the UK’s ability to run its own trade policy. Pro-European MPs favour the European Economic Area (Norway) – EEA, which would raise questions about the point of Brexit (Norway’s position is best described as a waypoint on the way in, not an exit route). Increasing focus is being paid to a cross-party model called “Common Market 2.0”, which would involve the UK going into the European Free Trade Area – EFTA (ironically founded by the UK in 1960). EFTA currently has four members, three of which (Norway, Iceland and Liechtenstein) are members of the EEA; Switzerland is not. In fact, if Parliament could agree the future direction quickly, the adaptations to the current withdrawal package need not take very long: the Withdrawal Agreement would remain; the Political Direction on the future relationship would be amended, and by doing so provide a pre-agreed route out of the Irish border backstop (and the substantive change the Speaker has ruled necessary). If that is a pre-existing structure (EEA or EFTA) there would be much greater comfort about sorting out the details later. If it is a wholly new FTA, there is much more uncertainty and hence in the mind of the Brexiteers scope for the EU to leverage its strength and veto over the route out of the backstop.

Meanwhile, there’s another party involved in this process….

Over in the EU, the UK’s Parliamentary contortions have given rise to exasperation and irritation. The Prime Minister will write to the European Council requesting an extension to the Article 50 process, which will be debated at the Council’s meeting on 21st March. While the EU is unlikely to refuse the UK’s request (and thus precipitate a “no deal” Brexit), the debate is unlikely to be a comfortable one for the Prime Minister. It would not be unreasonable for the EU leaders – who have lost faith in Theresa May as a negotiating partner – to expect her to be clear about the purpose of the extension: simply giving more time to allow the UK’s parliamentary stalemate to continue is very unlikely to command support. If the Prime Minister is unable to give a satisfactory description of the purpose of the extension, it is likely that the EU will make any agreement to extension conditional.

]]>https://www.brexitlegal.com/2019/03/brexit-where-do-we-stand-18-march-2019/feed/0No-Deal Brexit and Contemplated German Temporary Permissions Scheme for Banks, Insurers and Financial Services Providershttps://www.brexitlegal.com/2019/01/no-deal-brexit-and-contemplated-german-temporary-permissions-scheme-for-banks-insurers-and-financial-services-providers/
https://www.brexitlegal.com/2019/01/no-deal-brexit-and-contemplated-german-temporary-permissions-scheme-for-banks-insurers-and-financial-services-providers/#respondMon, 14 Jan 2019 15:01:40 +0000https://www.brexitlegal.com/?p=1377As it stands, the UK will cease to be a member state of the European Union (EU) as of 30 March 2019. On 24 November 2018, the UK and the EU agreed to enter into a Withdrawal Agreement (the Withdrawal Agreement). The Withdrawal Agreement provides in Article 127 (6) that during a transition period from … Continue Reading

]]>As it stands, the UK will cease to be a member state of the European Union (EU) as of 30 March 2019.

On 24 November 2018, the UK and the EU agreed to enter into a Withdrawal Agreement (the Withdrawal Agreement). The Withdrawal Agreement provides in Article 127 (6) that during a transition period from 30 March 2019 to 31 December 2020 (the Transition Period), any reference in EU law to a member state of the EU shall include the UK.

Accordingly, the current passporting rules for cross-border services provided by banks, insurance companies and financial services providers from the UK into the EU, as well as the current passporting rules for branches established by UK banks, insurance companies and financial services providers in the territory of the EU to carry out banking business (including commercial lending), insurance business and other financial services in Germany would continue to apply during the Transition Period, provided that the Withdrawal Agreement is finally adopted and entered into by the UK and the EU.

]]>https://www.brexitlegal.com/2019/01/no-deal-brexit-and-contemplated-german-temporary-permissions-scheme-for-banks-insurers-and-financial-services-providers/feed/0No-Deal Brexit and EU Commission Approach: General Principle of No Contingency Measures for UK Economic Operatorshttps://www.brexitlegal.com/2019/01/no-deal-brexit-and-eu-commission-approach-general-principle-of-no-contingency-measures-for-uk-economic-operators/
https://www.brexitlegal.com/2019/01/no-deal-brexit-and-eu-commission-approach-general-principle-of-no-contingency-measures-for-uk-economic-operators/#respondThu, 10 Jan 2019 16:55:32 +0000https://www.brexitlegal.com/?p=1371As it stands, the UK will cease to be a member state of the European Union as of 30 March 2019. On 24 November 2018 the UK and the EU agreed to enter into a Withdrawal Agreement. The Withdrawal Agreement provides in Article 127 (6) that during a transition period from 30 March 2019 to … Continue Reading

]]>As it stands, the UK will cease to be a member state of the European Union as of 30 March 2019.

On 24 November 2018 the UK and the EU agreed to enter into a Withdrawal Agreement. The Withdrawal Agreement provides in Article 127 (6) that during a transition period from 30 March 2019 to 31 December 2020 any reference in EU law to a Member State of the EU shall include the UK and accordingly the legal position of economic operators from the UK as of today would in principle continue to apply during the transition period, provided that the Withdrawal Agreement is finally adopted and entered into by the UK and the EU.

However, the final adoption of the Withdrawal Agreement requires the consent of and ratification by the Houses of Parliament in the UK. The vote in the House of Commons in the UK scheduled for 11 December 2018 was postponed. The House of Commons returned on 7 January 2019 and will resume debate on 9 January 2019. It is expected that the vote in the House of Commons will take place week beginning 14 January 2019. At the time of writing, it is unknown if the House of Commons will vote in favour of the Withdrawal Agreement. If the vote is unsuccessful, the UK may leave the EU without a deal.

In such case, the transition period will not come into force and UK economic operators, as well as goods and services from the UK, will be treated like any other Third Country economic operator, goods and services as of 30 March 2019.

The approach of the EU Commission in respect of contingency measures is express and straightforward. The EU Commission takes the point of view that market participants had sufficient time to prepare for a no-deal Brexit and the EU Commission has prepared all operators for the consequences of such by issuing a huge amount of preparedness notices. The bulk of them having been published at the beginning of 2018 and a reiteration thereof in July 2018.

By having done so the EU has strived to prepare itself for any potential future litigation in respect of claims relating to a potential breach of the general principle of trust (Vertrauensschutz) which is part of the EU wide principle of the rule of law (Rechtsstaatsprinzip) and claims relating to existing investment protection rules.

In its Memo of 19 December 2018 on “Questions and Answers: the consequences of the United Kingdom leaving the European Union without a ratified Withdrawal Agreement (no deal Brexit)”, the EU Commission states that contingency measures will in principle be unilateral (to some extent requiring reciprocity from the UK but without any further negotiations) and shall be strictly limited to what is necessary to deal with major disruptions and that contingency measures cannot remedy delays that could have been avoided by preparedness measures and timely action by relevant market participants.

Accordingly, the EU Commission has restricted itself as of 19 December 2018 to only taking very narrow measures in respect of a no-deal Brexit on 30 March 2019:

]]>https://www.brexitlegal.com/2018/10/podcast-brexit-the-tax-implications/feed/0Navigating the Road Ahead: Cost of Sourcing Retail Productshttps://www.brexitlegal.com/2018/03/navigating-the-road-ahead-cost-of-sourcing-retail-products/
https://www.brexitlegal.com/2018/03/navigating-the-road-ahead-cost-of-sourcing-retail-products/#respondTue, 27 Mar 2018 15:24:29 +0000https://www.brexitlegal.com/?p=1236The UK’s retail sector is one amongst many that will be significantly affected by the country’s withdrawal from the EU following a transition period. Yesterday we are launched the first edition of the Quarterly UK Retail Brexit Trade Review. The Review contains economic, policy and legal analysis on the impact of changed trading terms and … Continue Reading

]]>The UK’s retail sector is one amongst many that will be significantly affected by the country’s withdrawal from the EU following a transition period. Yesterday we are launched the first edition of the Quarterly UK Retail Brexit Trade Review. The Review contains economic, policy and legal analysis on the impact of changed trading terms and narrative on the progress of UK and EU trade negotiations specific to the retail industry. The research in this first Review outlines three possible trading models for the UK’s long-term, future relationship with the EU; each model has different implications for the cost of sourcing imports, both from the EU and beyond. Analysis is provided across eight key sectors within the retail industry, including an outline of a range of opportunities the UK government should pursue in the event of a “no deal” scenario. Research suggests that £7.8 billion could be added to the cost of retail goods if the UK fails to agree a deal with the EU.

]]>https://www.brexitlegal.com/2018/03/navigating-the-road-ahead-cost-of-sourcing-retail-products/feed/0Proposed Import Arrangements Leave a Sour Taste for Exportershttps://www.brexitlegal.com/2017/10/proposed-import-arrangements-leave-a-sour-taste-for-exporters/
https://www.brexitlegal.com/2017/10/proposed-import-arrangements-leave-a-sour-taste-for-exporters/#respondTue, 17 Oct 2017 10:30:25 +0000http://www.brexitlegal.com/?p=1164Brexit takes us to Geneva Some say that Brexit negotiations with third countries have not yet started. They are forgetting an important prerequisite. For the UK to control and negotiate its own commercial policy independently, the journey could only start in Geneva. Here is why … Proposed Trading Quotas Allocation Method Leave a Sour Taste … Continue Reading

Some say that Brexit negotiations with third countries have not yet started. They are forgetting an important prerequisite. For the UK to control and negotiate its own commercial policy independently, the journey could only start in Geneva. Here is why …

At the moment, Brussels negotiates all tariffs and quotas for imported goods on behalf of the 28 EU Member States in accordance with Article II of the GATT. Tariff bindings and quotas are recorded in the EU Schedules of Concessions on goods, which are annexed to the GATT 1994 and are considered an integral part of WTO commitments of the EU, and its 28 Member States.

Last year, the UK Ambassador and Permanent Representative to WTO, Julian Braithwaite, indicated in a blog that the transposition of EU Schedules into UK Schedules would be a relatively straightforward process for most tariffs of goods or arrangements in services. Ultimately, those commitments will be integrated as part of the EU Withdrawal Bill to have force of law in the UK after Brexit. He admitted however that some areas would raise issues. Amongst them, the now-oh so famous Agricultural Tariffs-Rate Quotas (TRQs), under which countries can import certain goods with reduced duties, but up to a maximum limit. TRQs are important because they usually apply to goods that are sensitive (think agriculture and food). As such the post-Brexit allocation of those TRQs is being watched by WTO members, especially large exporters of agricultural and food to the EU.

A significant step was reached this week as the EU and UK delegation formalised an official position defining how they will divide the TRQs between them. This is a welcomed development, in a long journey towards the building of the UK trade policy post-Brexit. Here is what is on the table.

The Proposal – what is on the table?

In a letter issued 11 October 2017, Britain and the EU have agreed to “maintain the existing levels of market access available to other WTO members” and to define the EU and the UK quantitative commitments “through an apportionment of the EU’s existing commitments, based on trade flows under each tariff-rate quota”. The basic idea behind it is to reduce the EU’s quotas, with Britain taking over the vacated share; the argument being that the rest of the world will be “no worse off” after Brexit. It is argued that the portion of the EU’s quotas that the UK would take is based on the UK’s average consumption over the last three years. In addition, they will also be apportioned the level of agricultural subsidies agreed. In other words, it is all about data and calculation. Their legal basis? A 1980 decision on Procedures for Modification and Rectification of Schedules of Tariff Concession offering basis for WTO members to modify or change their commitments provided that it is certified by the Director-General. This rectification decision offers the crucial advantage to avoid going through the formal modification procedure based on Article XXVIII GATT 1994, which involves formal negotiations between WTO members.

Is it this simple?

Seemingly less than impressed with the proposed arrangement, a sternly worded letter of complaint from the big seven food exporters, the U.S., Canada, New Zealand, Brazil, Thailand, Argentina and Uruguay, found its way to UK and EU representatives on 26 September. It stated, in no uncertain terms, that they “cannot accept such an agreement”.

More precisely, on the allocation method, the delegations specified that to split TRQs based on historical averages “would not be consistent with the principle of leaving other WTO members no worse off, nor fully honour the existing TRQ access commitments”. Indeed, two fixed quotas (one for the EU and one for the UK) could make markets more difficult to sell to than one large quota. Essentially, they claim that the current market setup is more flexible, allowing exporters to sell to more product to areas of the market where demand is greater.

As ever the difficulty in those talks lies in the uncertainty surrounding the economic consequences of Brexit. Under the proposed EU/UK agreement, any post-Brexit UK economic decline could severely affect the demand for agriculture exports. If true, splitting of quotas would risk reducing the available market for exporters where a decline occurs. On this point, the data and methodology used to define trade flows under each TRQs will therefore be crucial.

However, perhaps more importantly, it is the legal basis that is at stake here. In considering that the process is technical rectification only, the EU and the UK want to avoid going through a formal negotiation process. But, there are some conditions attached to the process: changes shall be of a purely formal character and they shall not alter the scope of a concession. A certification will only be granted if no objections are raised by other contracting parties. If WTO members disagree with the outcome of the informal negotiations taking place, it is likely that they will consider objecting. For this reason, the actual TRQs allocation method could well end up being interpreted in WTO dispute settlement proceedings.

What happens next?

The complaint should be seen as a stark reminder that Brexit is not an EU-only divorce. In their response to the complaints, the UK and the EU reasserted their willingness to “engage actively with WTO members”. However, by insisting that they expected a particularly “high degree of transparency through the sharing of relevant information and data”, the seven responding nations suggested that this has not been the case so far. Although perhaps not raising the alarm at this stage, they were making their point, and voice heard.

As such, it seems as though this matter could rumble on for some time before being resolved. Keep calm and carry on.

]]>https://www.brexitlegal.com/2017/10/proposed-import-arrangements-leave-a-sour-taste-for-exporters/feed/0The Future for VAT: Customs Bill White Paperhttps://www.brexitlegal.com/2017/10/the-future-for-vat-customs-bill-white-paper/
https://www.brexitlegal.com/2017/10/the-future-for-vat-customs-bill-white-paper/#respondMon, 16 Oct 2017 10:41:50 +0000http://www.brexitlegal.com/?p=1160On 9 October 2017, the UK Government published its White Paper on the Customs Bill, setting out the government’s approach to legislating for the future customs, VAT and excise regimes post-Brexit. This blog looks at the VAT position. The paper seems to suggest that the government is now accepting that import VAT will be payable … Continue Reading

]]>On 9 October 2017, the UK Government published its White Paper on the Customs Bill, setting out the government’s approach to legislating for the future customs, VAT and excise regimes post-Brexit. This blog looks at the VAT position.

The paper seems to suggest that the government is now accepting that import VAT will be payable on goods imported from the UK after Brexit. Previously, the government has indicated (in its Future Partnership Paper published in August) that its aim was, rather than having just two categories of domestic supplies and international supplies, to maintain the three categories of supplies currently differentiated under the EU/UK VAT code: (1) domestic supplies; (2) supplies between the UK and the EU27 (i.e. supplies that are currently intra-EU supplies); and (3) other international supplies. The rationale for this aim is laudible and clear: an obligation on importers to fund input VAT (which may be recoverable) is inconsistent with frictionless trade, one of the government’s three guiding strategic objectives. Import VAT, where previously acquisition VAT existed, is a bureaucratic administrative burden for both businesses and HMRC. However, without a deal including changes to both UK legislation and Directive 2006/112/EC this will not be possible. To EU27 countries the UK will be a third country, to the UK the EU27 countries will be third countries. It is unsurprising that maintaining three categories of supplies does not appear to be a likely eventuality, but this will be worrying for both the government and for businesses importing goods from EU countries, which could face the burden of paying VAT upfront, and the additional bureaucracy and friction in international dealings.

There is a surprising amount of detail on the importation of small parcels, including two tables setting out the current VAT (and customs and excise) position for business to business, business to consumer, and consumer to consumer importations. UK businesses are unlikely to be particularly worried about the importation of small parcel; parts used in manufacturing, for example, cars, do not tend to be sent to manufacturers in small parcels. That said, a number of people responded on Twitter to say that for a number of businesses, satisfactorily resolving the position on the VAT treatment of small parcels is of central importance.

There has been no detailed suggestion of how import VAT might work at any border – let alone the Irish border, which is a further area of concern for the government. Avoiding a hard border between Ireland and Northern Ireland is another strategic objective. There is a suggestion that there will be no VAT on personal use items of any value personally imported from the EU (in contrast to those imported from, say, the US, where the limit is £390 on certain goods, and there are limits by quantity of alcohol and tobacco products). This would appear to be a solution to a political problem: tourists returning from France are used to filling up their car boots with wine and cigarettes. But this would appear to give rise to some planning opportunities, e.g. Apple could set up a store just south of the Irish border, and tourists could buy iPads effectively without VAT, by claiming a refund of tax paid on export.

Because the Bill is intended to apply in a range of negotiated (or not) outcomes, including a no deal and a limited deal scenario, it is to a degree necessary for the Bill to give the government “flexibility to deal with VAT on movements of goods and services between the UK and EU”. However, there is a danger that the “appropriate delegated powers” – the so-called Henry VIII powers – could result in taxation without parliamentary scrutiny. Whilst the paper correctly notes that it is usual practice for secondary legislation to set out rules concerning the administration, collection and enforcement of tax, it also subtly pivots to suggest that VAT rules contained in the Bill could go beyond this to allow changes to primary legislation more fundamentally. It is not entirely clear at this stage which parts of the VAT Act the government thinks may need to be changed in a no-deal scenario; as discussed above, the Act already caters for both domestic and non-domestic supplies – which is what EU countries will become to the UK in a no-deal scenario by default.

In one sense, VAT should be a straightforward area of Brexit, compared to issues such as immigration and aviation (see blog posts passim). On the other, the UK Government appears to be all too well aware of the VAT challenges for individuals and businesses on leaving the EU, even if it still does not have answers to the problems.

]]>https://www.brexitlegal.com/2017/10/the-future-for-vat-customs-bill-white-paper/feed/0Brexit: Time Is of the Essencehttps://www.brexitlegal.com/2017/08/brexit-time-is-of-the-essence/
https://www.brexitlegal.com/2017/08/brexit-time-is-of-the-essence/#respondThu, 24 Aug 2017 17:59:48 +0000http://www.brexitlegal.com/?p=1121Why the Involvement of the ECJ May Become a Stumbling Block On 29 March 2017 the UK delivered its notice to leave the European Union (EU) pursuant to Article 50 of the Treaty on European Union (TEU). Such notice started the two-year “sunset period”, at the end of which the UK will cease to be … Continue Reading

On 29 March 2017 the UK delivered its notice to leave the European Union (EU) pursuant to Article 50 of the Treaty on European Union (TEU). Such notice started the two-year “sunset period”, at the end of which the UK will cease to be a member state of the EU (subject to potentially three exemptions).

The negotiation of the Withdrawal Agreement started in June 2017, with the EU having granted a mandate to the negotiators for so-called “Phase 1”, which shall deal with (i) Citizen’s Rights in the EU27 and the UK, (ii) the financial settlement and (iii) the relationship between Northern Ireland and the Republic of Ireland.

Time is of the essence for the negotiations since the agreements on Phase 1, as well as the potential Phase 2 on the future trading relationship, must be finalised well before 29 March 2019, in order to enable the European Council, the European Parliament, the Parliaments of all EU27 Member States and the UK Parliament to adopt and ratify the negotiation results.

One major stumbling block that must be removed in time is the issue of how the European Court of Justice (ECJ) will be involved in the Withdrawal Process.

There is the obvious and well-discussed issue of what role the ECJ will be given under the Withdrawal Agreement and the Future Relationship Agreement. In that respect the Department for Exiting the European Union has issued on 23 August 2017 a position paper on Enforcement and Dispute Resolution. It needs to be seen how the EU27 will react to the statements made therein.

However, there is another, rather hidden, undiscussed and unresolved second aspect:

It is a common theme for the EU and its member states to obtain Opinions from the ECJ on the constitutionality of agreements that the EU contemplates to enter into with other states. Such Opinions are obtained prior to the conclusion of such international agreements. One major aspect of such Opinions obtained from the ECJ is whether the system of judicial review contemplated in the relevant agreement is compatible with the EU legal order and sufficiently reflects the competences of the ECJ. Striking examples for such Opinions are ECJ Opinion 1/91 and 1/92 in respect of the Treaty on the European Economic Area (dealing mainly with the system of dispute resolution), ECJ Opinion 1/00 in respect of the Multilateral Treaty on the European Common Aviation Area (also dealing with the system of dispute resolution) and ECJ Opinion 2/13 on the (failed) accession of the EU to the European Convention for the Protection of Human Rights (where the ECJ Opinion made the accession fail, inter alia, on the grounds of the contemplated system of dispute resolution being incompatible with the TEU and TFEU).

Thus, the crucial issue is: Will the EU27 ask the ECJ to render an Opinion in respect of any draft Withdrawal Agreement and Future Relationship Agreement, in particular, with having the proposed system of dispute resolution being reviewed by the ECJ? How would such a request for an ECJ Opinion fit into the timetable until 29 March 2019?

Of course, there is also the issue of whether there is a competence of the ECJ to render an Opinion in respect of the Withdrawal Agreement and the Future Relationship Agreement at all. The legal basis for such ECJ Opinions is Article 218 (11) TFEU. Article 50 TEU which deals with the Brexit procedure obviously does not expressly refer to Article 218 (11) TFEU.

However, there are number of legal arguments for stating that it cannot be excluded that the ECJ will, if called upon by the competent applicants on the EU27 side, apply Article 218 (11) TFEU either directly or in analogy¹ to argue for its competence to render an opinion on the legality and constitutionality of any draft Withdrawal Agreement and Future Relationship Agreement prior to such agreements being entered into.

]]>https://www.brexitlegal.com/2017/08/brexit-time-is-of-the-essence/feed/0International Air Traffic after Brexit: Time to Fasten Your Seatbeltshttps://www.brexitlegal.com/2017/08/internal-air-traffic-after-brexit-time-to-fasten-your-seatbelts/
https://www.brexitlegal.com/2017/08/internal-air-traffic-after-brexit-time-to-fasten-your-seatbelts/#respondMon, 21 Aug 2017 14:45:48 +0000http://www.brexitlegal.com/?p=1111The UK’s triggering of Article 50 on 29 March 2017 means that it will officially cease to be a member of the European Union on 30 March 2019. As this deadline approaches rapidly, there are a multitude of issues to be resolved and legislative tangles to be unscrambled. One such problem area that has received … Continue Reading

]]>The UK’s triggering of Article 50 on 29 March 2017 means that it will officially cease to be a member of the European Union on 30 March 2019. As this deadline approaches rapidly, there are a multitude of issues to be resolved and legislative tangles to be unscrambled. One such problem area that has received limited media coverage – relative to the Customs Union and the Single Market in general, at least – is that of air traffic rights.

Currently, the UK is the beneficiary of the European Single Sky, the European Common Aviation Area Agreement and numerous Comprehensive Air Transport Agreements and Horizontal Air Transport Agreements that the EU has entered into with other countries around the world. As it stands, leaving the EU means the UK will lose the benefit of and the traffic rights under these agreements.

It is, therefore, essential that the UK, the EU and various other countries around the world agree new bilateral Air Service Agreements post-withdrawal or – insofar as the UK and the EU are concerned – factor any air traffic rights into any Article 50 Withdrawal Agreement.

In the recent article “International Air Traffic After Brexit”, Jens Rinze looks at what the “EU Open Sky” is and how other Comprehensive and Horizontal Air Transport Agreements that the EU has entered into with various other countries around the world are relevant, explains how this and future flights from the US, Australia and Asia Pacific are to be affected by Brexit and considers some of the options that the UK and the EU (and other countries) may need to take to avoid major disruptions to air traffic.

]]>https://www.brexitlegal.com/2017/08/internal-air-traffic-after-brexit-time-to-fasten-your-seatbelts/feed/0Government Unveils Post-Brexit Customs Paperhttps://www.brexitlegal.com/2017/08/government-unveils-post-brexit-customs-paper/
https://www.brexitlegal.com/2017/08/government-unveils-post-brexit-customs-paper/#respondThu, 17 Aug 2017 09:59:48 +0000http://www.brexitlegal.com/?p=1101More than a year has passed since the UK voted to withdraw from the European Union without much clarity ever given to businesses on what the terms of the intra-EU trade with the remaining EU27 would look like post-March 2019. This has led to many of our clients planning for the worst possible option, i.e. … Continue Reading

]]>More than a year has passed since the UK voted to withdraw from the European Union without much clarity ever given to businesses on what the terms of the intra-EU trade with the remaining EU27 would look like post-March 2019. This has led to many of our clients planning for the worst possible option, i.e. anticipating that at midnight on March 2019, the UK would formally have withdrawn from the EU without an arrangement in place.

However, on 15 August 2017 – a bank holiday for a large part of Europe − the UK government released its most-anticipated “Future customs arrangements paper”: the first of a series of papers setting out the UK government’s thinking on its future relationship with the EU.

We took advantage of a relatively calm week to propose a few thoughts, our immediate reactions to the key issues and questions arising out of the UK government’s strategy. As you will see, the debate is just beginning.

Timing of the UK Proposal

The legal and practical considerations of the UK leaving the EU Customs Union in a post-Brexit world was not much discussed during the referendum campaign and it took time for the government to formally address the issue and start engaging with UK businesses regarding this. This has led us lawyers, and our clients, to prepare for all eventualities, including a possible “no deal” situation where the UK would leave the EU Customs Union without any arrangement in place. This is a solution feared by many in the UK, as it would mean very cumbersome procedures and controls with the EU27, without facilitation. In any event, there is insufficient time before March 2019 to install the customs clearance facilities that would be necessary. This would be particularly damaging for companies that operate on a “just in time” basis and who do not have the capacity and budget to carry those additional tasks and the inevitable delays that would result.

In this respect, the publication of the customs proposal by the UK government can only be welcomed. Presumably, it is intended to address the concerns at home and in Brussels that the UK government did not have much of a customs plan at all. In an early statement, the European Commission confirmed the optimism by stating that it will study the content of the customs proposal, before releasing its own proposal in the next few weeks. “The clock is ticking and this will allow us to make progress” − a few rays of sunshine in an otherwise grey August. Nonetheless, the position paper is principally a statement of broad aspirations rather than a concrete plan for borders that are as seamless and frictionless as possible. The improvement of IT systems for customs clearance remains an objective of countries the world over, but the practical, political and legal issues are not dealt with in the paper.

The first and obvious hurdle lies in the ability for the UK to push these discussions at the next round of talks with the EU, scheduled for the end of August. On this point, the EU27 always made it clear that the trade negotiations would progress if and when sufficient progress was made on the terms of the UK’s withdrawal (also known as “first we withdraw, then we negotiate”). And the budget settlement and citizen’s right proposals are not finalised as yet.

What about Ireland? Interestingly, paragraphs 43-45 of the proposal look at the land border with Ireland, an issue that the EU considers to form part of the withdrawal negotiations. By conditioning the customs proposals described in this paper as “first steps” to meet the UK government’s objectives to “trade across that land border” as seamless and frictionless as possible, it is clear that the UK government intends to address it only in the wider context of a wider EU/UK customs discussion. In other words, the government does not intend to talk about Ireland if the customs transition and future partnership is not addressed. Note that this was swiftly contradicted by Michel Barnier, who tweeted shortly after the publication: “the quicker #UK & EU27 agree on citizens, settling accounts and #Ireland, the quicker we can discuss customs & future relationship” − a bon entendeur, but Michel ignores the fact that the Irish border issue is about customs clearance (as well as immigration controls) so that the two cannot logically be considered separately. [See Ireland/NI Position Paper published 16/8/17]

Transition Period

In the paper, the UK government states that it “believes that a model of a close association with the EU Customs Union for a time-limited period” is a necessary step to then implement what it sees as its two options for its post-withdrawal arrangement (see further below).

This acceptance of a transition phase is a welcomed move, yet its contours are still completely legally unshaped. Under EU law, there is no such thing as “close association membership” with the EU Customs Union that could find legal basis in the EU treaties. Using the much-debated example of the EU-Turkey customs union agreement, in addition to providing for a common external tariff for the products covered, the customs union foresees that Turkey is to align to the acquis communautaire in several essential internal market areas, notably with regard to industrial standards. If the UK could consider association membership, while un-aligning itself from the acquis communautaire, it remains to be seen if this is a solution that the EU could consider. The position paper makes no reference to the internal market or the possibility of continued membership for the transition period.

The UK government seems to acknowledge that whilst this interim close association membership will not prevent negotiations with third countries, it would curtail its ability to sign new trade agreements with non-EU countries. This does not change much from the status quo where scoping discussions would occur but no agreement could be reached. How this actually differs from current customs union membership is a question. As ever, the legal devils will lie in the actual details of this interim deal sought with the EU (membership fees, enforcement mechanism, dispute resolution, timeline, destination of duties collected, etc.). It is difficult to see how the European Court of Justice could be excluded from such arrangements.

The Future Customs Relationship

The UK government identifies two options for after the transition period:

A “new customs partnership … which would negate the need for a customs border between the UK and the EU”

A new “highly streamlined customs arrangement”

It is not clear if those models are part of the same solution or if one is preferred to the other. It is clear, however, that in those trading models, the UK trades with the EU as a third country and is completely outside of the customs union. In practice, this means it will no longer share the EU common external tariff and customs controls with EU27 member countries will be re-imposed. Upon expiry of the associated membership status, traders will face tariff barriers and will, therefore, be liable to pay customs duties upon entry into the UK and into the EU Customs Union. Once the UK breaks away from the EU, and if it were to keep the common external tariff, any company moving parts and goods between the EU and the UK would face a tariff charge every time a border was crossed. Therefore, UK-EU trade will have to proceed according to the Most Favoured Nation

(MFN) principle – absent any transitional arrangement.

To mitigate this cliff-edge situation, the first model tries to simplify customs arrangements so that they are as frictionless as possible. This is done through continuing “some existing arrangements”, “reducing or removing” other barriers and a variety of IT solutions. The paper suggests a waiver on entry and existing requirements, a mutual recognition agreement for Authorised Economic Operators (AEOs), technology-based solutions for roll-on/roll-off ports and some other initiatives. At present, only companies established within the EU’s customs territory may apply for the AEO status. The regime provides such benefits as easier admittance to customs simplifications and recognition as a secure and safe business partner does across the union. Whilst a mutual recognition of AEO status could mitigate the impact of lengthy procedures for UK-EU trade, there will still be customs checks attached to this status.

What the paper does not suggest is how much this system would cost for both the UK and the EU taxpayers and how long it will take to put this into effect. It also misses an important point, i.e. those national customs authorities operate under a unified legal framework (the Union Customs Code) but using very different customs systems. If systems can be streamlined in the UK, benefit for traders would only arise if facilitation arrangements can be sought with all EU27 customs authorities − a daunting task that is likely to last for years, experts say. All EU member states would need to adopt the new system, at a substantial cost. It is far from clear that they would all be willing to incur this expense for the benefit of the UK.

With respect to the new customs partnerships, the paper proposes to mirror the EU customs approach at its external border, at least as far as imports from third countries to the EU are concerned, apparently to remove the need for intra EU and UK customs checks. It acknowledges that this is an “untested and unprecedented approach” and it does not provide an explanation of how it would work. It seems that this would mean that the UK would act as a tax collector for the EU and still re-distribute that part of its duties collection to the EU budget.

It is to be hoped that both sides in this difficult negotiation will accept that a simple exit from the EU Customs Union in March 2019 is completely impractical for both sides. France will not have installed facilities for customs clearance in Calais and it is likely that imports and exports between the UK and the EU would grind to a halt.